What Is Unemployment Insurance?

Unemployment insurance (UI), otherwise known as unemployment benefits, is provided by states to people who have lost their jobs and meet certain eligibility criteria.
Although eligibility for unemployment benefits varies depending on where you live, in general, you can qualify for benefits if you lose your job through no fault of your own and do not quit voluntarily or get fired for cause. Self-employed individuals are not eligible for unemployment benefits.

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Unemployment Insurance Definition

Unemployment insurance is designed to protect people who get laid off from their jobs through no fault of their own. If that happens, the person can make a claim for unemployment benefits, which is a weekly amount provided by the state based on a fraction of the person’s wages or salary before they lost their job.

UI benefits are distributed by the states, each of which has its own rules for eligibility. As a result, an unemployment claim is filed in the state where you worked instead of where you live.

How Does Unemployment Insurance Work?

Unemployment insurance is a joint federal-state program that provides weekly payments to people who are out of work because of something that isn’t their fault and are actively looking for work.

States administer their UI programs. As a result, the rules governing UI vary considerably between states.

However, to promote some uniformity and ensure that UI benefits are available nationwide, there are certain rules enforced by the US Department of Labor that all states have to comply with.

Regular unemployment benefits can last up to 26 weeks, although this period can be extended during times of high unemployment by the state, the federal government, or both. For example, the US government extended state unemployment benefits during the COVID-19 pandemic.

The exact amount of a person’s weekly UI payment depends on what they were earning when they still had a job. However, it usually amounts to about half of their previous wages.

How Is Unemployment Insurance Funded?

Unemployment insurance is funded by taxes on employers.

Self-employed individuals are not eligible for unemployment benefits.

Both the federal government and the states assess unemployment taxes on employers. The state UI tax funds regular UI benefits.

The federal UI tax is levied under the Federal Unemployment Tax Act (FUTA) to help administer state UI programs and fund extra unemployment benefits that the federal government sometimes provides during economic downturns.

The amount of state UI tax an employer pays for each employee is calculated using the “taxable wage base” and the tax rate. The minimum taxable wage base is the first $7,000 of an employee’s wages.

An employer’s state tax rate depends on how often it has laid off workers in the past who then filed for unemployment benefits. The more people an employer has historically laid off, the higher its UI tax rate will be.

The FUTA tax is equal to 0.6% of the first $7,000 each employee earns per year. This means that higher-paid workers pay a lower percentage of their annual income in FUTA taxes than lower-paid workers. As a result, some people have criticized the FUTA tax as regressive.

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Who Is Eligible and How Are Claims Filed?

Generally speaking, to qualify for UI, you must:

  • Have lost your job through no fault of your own
  • Be able to work and actively look for work
  • Have earned a minimum level of wages and/or worked for a minimum amount of time during a specific period, called the “base period,” before losing your job

Because UI programs are administered by the states, specific eligibility rules vary considerably across the US. For example, some states don’t allow part-time workers to receive UI benefits unless they look for full-time work. In addition, the base period differs from state to state.

Because of these variations, it’s important to check your state’s particular rules for eligibility before you apply.

If you quit your job voluntarily or are fired for willful work-related misconduct, you aren’t eligible for unemployment benefits. Depending on the state, other reasons you might be denied unemployment include:

  • Misconduct unrelated to work
  • Declining your employer’s offer of a suitable job different from the one you are currently doing
  • Testing positive for controlled substances
  • Receiving severance pay, which can reduce or eliminate your UI payments
  • Earning an income while still filing for unemployment
  • Not looking for work while receiving unemployment

A UI claim is usually filed in the state where you worked rather than where you live. You can file on the state’s UI website or by phone.

Depending on the efficiency of the state’s unemployment system and how many people are applying at a given time, it can take at least two or three weeks to start receiving benefits. Sometimes it takes longer, such as during the COVID-19 pandemic when many state UI systems were overwhelmed by applicants.

Once you are approved for benefits, you must file a claim every week or every two weeks in order to keep receiving them. As part of the filing process, you must usually demonstrate that you are looking for work in accordance with the state’s rules.

When filing for unemployment benefits, you must take any suitable offer of employment that you receive, including freelance work. Refusing a job that you are able to do can disqualify you for UI.

What Additional Unemployment Benefits Are Available During Difficult Economic Times?

The federal government sometimes provides additional unemployment benefits during recessions or slow economic recoveries in which many people are unemployed. Congress can establish such federal programs.

For example, Congress passed laws to extend and supplement state unemployment benefits during the COVID-19 pandemic. As a result, people received unemployment benefits for much longer than they otherwise would have, and the amount of those benefits was doubled or tripled.

In addition, the permanent federal-state Extended Benefits (EB) program can assist people living in states whose economies are suffering even if the US economy as a whole is relatively healthy. The program, established in 1970, extends the duration of state unemployment benefits to workers living in these hard-hit states where unemployment is especially high.

Unemployment Insurance Frequently Asked Questions

Who is eligible for unemployment benefits?

Eligibility for unemployment varies by state. However, generally speaking, you will be eligible if you become unemployed through no fault of your own, meet requirements for wages earned or time worked during a specific period, and meet other requirements specific to your state.

What would stop me from getting unemployment benefits?

Depending on where you live, several things could disqualify you from receiving unemployment benefits. Quitting a job voluntarily, being fired for cause, work-related misconduct, misconduct outside of work, declining a suitable job at your current employer, failing a drug test, receiving severance pay, and not looking for work while you’re unemployed are some of the things that could prevent you from receiving benefits. Check the laws that apply to your state for a definitive answer.

Do you have to pay back unemployment benefits?

You don’t have to pay back unemployment benefits once you find another job unless you committed fraud or the state paid you benefits by mistake. Fraud can include, for example, failing to report wages you received while you were still collecting unemployment benefits.

Earned wages decrease the amount of unemployment benefits you are eligible for up to a certain amount, after which you aren’t entitled to any benefits. Other types of fraud include saying you’ve been looking for work when you haven’t or saying you’re unavailable to work when you are.

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